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F500-2023-068-Caterpillar

The 100-year-old construction equipment company rose five spots in 2023 from No. 73 last year. In the 2022 fiscal year, Caterpillar’s sales and revenue rose 16.6% to $59.4 billion, marking one of the best years in company history. 
<ul> 
 	<li>Caterpillar moved its global headquarters from Deerfield, Ill., to Irving, Texas, in 2022.</li> 
 	<li>To cope with inflation and increasing costs, Caterpillar raised its equipment prices, which helped boost its sales.</li> 
 	<li>But the heavy-machinery maker still had its fair share of struggles in 2022 in the form of COVID-era supply-chain snarls, inflationary forces, and slow pickup in Chinese demand.</li> 
 	<li>In October 2022, Caterpillar waived an internal policy that would have required CEO Jim Umpleby to retire when he turns 65, allowing him to continue as the top executive.</li> 
 	<li>The company is the world’s leading manufacturer of construction and mining equipment, off-highway diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives, and now has roughly 60% of its operations outside the U.S.</li> 
</ul>

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F500-2022-073-Caterpillar

Caterpillar recovered some of the ground it lost in 2020 after the pandemic brought construction to a near standstill worldwide. The company climbed five spots on the list this year, with 2021 revenue increasing 22% to $51 billion. Its profits increased dramatically as well, more than doubling. The gains reflected the pent-up demand for Caterpillar’s heavy machinery as construction projects picked up.

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<span data-sheets-value="{&quot;1&quot;:2,&quot;2&quot;:&quot;The 96-year-old construction machinery giant continued to slide in the Fortune 500 rankings, dropping 16 spots in 2020. Caterpillar’s bottom line suffered across all regions throughout the pandemic owing to lower demand. But the manufacturing sector has seen recovery start to pick up as more businesses reopen, and total industrial production rose 2.5% year over year in 2020. That, combined with improved commodity prices, hints at a better year ahead for the world’s largest construction-equipment manufacturer.&quot;}" data-sheets-userformat="{&quot;2&quot;:12673,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:2,&quot;11&quot;:4,&quot;15&quot;:&quot;Calibri, Arial&quot;,&quot;16&quot;:11}" data-sheets-textstyleruns="{&quot;1&quot;:0}{&quot;1&quot;:71,&quot;2&quot;:{&quot;6&quot;:1}}{&quot;1&quot;:78}">The 96-year-old construction machinery giant continued to slide in the Global 500 rankings, dropping 79 spots in 2020. Caterpillar’s bottom line suffered across all regions throughout the pandemic owing to lower demand. But the manufacturing sector has seen recovery start to pick up as more businesses reopen, and total industrial production rose 2.5% year over year in 2020. That, combined with improved commodity prices, hints at a better year ahead for the world’s largest construction-equipment manufacturer.

This year’s Fortune 500 marks the 67th running of the list.

F500-2021-78-Caterpillar

<span data-sheets-value="{&quot;1&quot;:2,&quot;2&quot;:&quot;The 96-year-old construction machinery giant continued to slide in the Fortune 500 rankings, dropping 16 spots in 2020. Caterpillar’s bottom line suffered across all regions throughout the pandemic owing to lower demand. But the manufacturing sector has seen recovery start to pick up as more businesses reopen, and total industrial production rose 2.5% year over year in 2020. That, combined with improved commodity prices, hints at a better year ahead for the world’s largest construction-equipment manufacturer.&quot;}" data-sheets-userformat="{&quot;2&quot;:12673,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:2,&quot;11&quot;:4,&quot;15&quot;:&quot;Calibri, Arial&quot;,&quot;16&quot;:11}" data-sheets-textstyleruns="{&quot;1&quot;:0}{&quot;1&quot;:71,&quot;2&quot;:{&quot;6&quot;:1}}{&quot;1&quot;:78}">The 96-year-old construction machinery giant continued to slide in the Fortune 500 rankings, dropping 16 spots in 2020. Caterpillar’s bottom line suffered across all regions throughout the pandemic owing to lower demand. But the manufacturing sector has seen recovery start to pick up as more businesses reopen, and total industrial production rose 2.5% year over year in 2020. That, combined with improved commodity prices, hints at a better year ahead for the world’s largest construction-equipment manufacturer.

For an astounding 13th straight year, Apple claims the top spot in Fortune’s annual ranking of corporate reputation, based on a survey of almost 3,800 executives, directors, and analysts.

This year's Fortune Global 500 generated $33.3 trillion in revenues and $2.1 trillion in profits.

G500-2020-204-Caterpillar

After a stellar 2018, the 95-year-old construction and farm machinery maker slipped a bit in 2019. Total revenue for fiscal 2019 came in at $53.8 billion, down 2% from the year prior. Tensions between the U.S. and China, one of Caterpillar's biggest markets, have hurt sales, and the broader economic slowdown presents an even more daunting near-term challenge. But Caterpillar has given investors incentives to stick with it during a slow patch: The manufacturer returned more than $6 billion in capital to shareholders in 2019, and increased its dividend by 20%.

This year's Fortune 500 marks the 66th running of the list.

F500-2020-062-Caterpillar

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Global business is back. After limping through a worldwide financial crisis and economic slowdown, the 500 largest companies ranked by revenues shattered all sorts of performance records in 2013: They racked up combined revenues of $31.1 trillion, up 2.5% from 2012, and profits soared 27% to nearly $2 trillion. China’s 95 companies (up from 89 last year) posted $5.8 trillion in revenues. The U.S. has four fewer companies on the list than last year but remains (for now) the country leader, with 128 corporations on the list—including No. 1 Wal-Mart Stores—reporting $8.6 trillion in revenues. 

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

Sector

Industry

Current All-Star Rank

Previous All-Star Rank

Industry Rank

Previous Industry Rank

Overall Score

Innovation

People Management

Use of Corporate Assets

Social Responsibility

Quality of Management

Financial Soundness

Long-Term Investment Value

Quality of Products/Services

Global Competitiveness

Strongest Dimension

Years on list

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Revenues ($M)

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Caterpillar is a global manufacturer of construction and mining equipment, industrial turbines, engines, and diesel-electric locomotives. Formed from the merger of two competitors in 1925, Caterpillar traces its origins to the fertile San Joaquin Valley, California’s agricultural heartland. The company’s name stems from one of the founders’ inventions, which replaced a steam tractor’s rear wheels with a track system that observers likened to a caterpillar as the machine crawled across soggy terrain. Caterpillar has seen its bright yellow machines become a familiar sight at construction sites around the world, while its employees develop products for industries ranging from oil and gas drilling and power generation to marine and rail technology.

Q2 2026

Q1 2026

Q4 2025

Q2 2025

Q1 2025

Q4 2024

Caterpillar (CAT): Company Profile, Stock Price, News, Rankings

legacy

Caterpillar

caterpillar

Welcome to the Second Quarter twenty twenty five Caterpillar Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Alex Capper. Thank you. Please go ahead.

Thank you, Adria. Good morning, everyone, and welcome to Caterpillar's second quarter of twenty twenty five earnings call. I'm Alex Kapper, Vice President of Investor Relations. Joining me today are Joe Creed, Chief Executive Officer Andrew Bonfield, Chief Financial Officer Kyle Epley, Senior Vice President of the Global Finance Services Division and Rob Rengel, Senior Director of Investor Relations. During our call, we'll be discussing the second quarter earnings release we issued earlier today.

You can find our slides, the news release and a webcast replay at investors.caterpillar.com under Events and Presentations. The content of this call is protected by U. S. And international copyright law. Any rebroadcast, retransmission, reproduction or distribution of all or part of this content without Caterpillar's prior written permission is prohibited.

Moving to slide two. During our call today, we'll make forward looking statements, which are subject to risks and uncertainties. We'll also make assumptions that could cause our actual results to be different than the information we're sharing with you on this call. Please refer to our recent SEC filings and the forward looking statements reminder in the news release for details on factors that individually or in aggregate could cause our actual results to vary materially from our forecast. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings.

On today's call, we'll also refer to non GAAP numbers. For reconciliation of any non GAAP numbers to the appropriate U. S. GAAP numbers, please see the appendix of the earnings call slides. Now let's advance to Slide three and turn the call over to our CEO, Joe Creed.

Thank you, Alex, and good morning, everyone. Thanks for joining us today. The Caterpillar team demonstrated solid operational performance in a fluid environment this quarter. Sales were in line with our expectations, and we delivered adjusted operating profit and adjusted operating profit margin above our expectations. We continue to see strong orders across our segments as demand remains resilient, supported by infrastructure spending and growing energy needs.

As a result, backlog grew by $2,500,000,000 with increases across all three primary segments. Our strong ME and free cash flow allowed us to deploy about $1,500,000,000 to shareholders through share repurchases and dividends during the quarter. As you know, the environment continues to be dynamic. The net impact of tariffs was around the top end of our estimated range for the quarter and is likely to be a more significant headwind to profitability in the 2025. We'll provide more details in a moment.

I'll start with my perspectives about this quarter's performance, then I'll discuss our outlook along with insights about our end markets. And then finally, Andrew will provide a detailed overview of results and key assumptions, including the net impact of incremental tariffs looking forward. Turning to Slide four. Sales and revenues were down 1% versus last year. The decrease was primarily due to unfavorable price realization, partially offset by higher sales volume and higher financial products revenues.

Second quarter adjusted operating profit margin was 17.6%. Although the net impact from incremental tariffs was around the top end of our estimated range, lower than expected manufacturing costs resulted in adjusted operating profit margin above our expectations. We achieved quarterly adjusted profit per share of $4.72 Compared to the 2024, machine sales to users were about flat. Energy and transportation continued to grow as sales to users increased 9%, driven primarily by power generation and industrial applications. For Construction Industries, sales to users were up 2% year over year, in line with our expectations.

In North America, sales to users were 3% higher than the prior year and better than we anticipated due to growth in both residential and nonresidential construction, partially offset by lower rental fleet loading. However, despite lower rental fleet loading, dealers' rental revenue continued to grow in the quarter. Sales to users increased in EAME primarily due to growth in Africa and The Middle East. However, overall growth in EAME was below our expectations due to weakness in Europe. In Asia Pacific, sales to users declined slightly.

Although China was about flat versus the prior year, the second quarter was below our expectations due to lower activity following a stronger than expected first quarter. Sales users in Latin America declined but were slightly better than we anticipated. In Resource Industries, sales users declined 3%, which was in line with our expectations. While mining was slightly worse, primarily due to the timing of off highway truck deliveries, sales to users in heavy construction and quarry and aggregates were slightly better than we anticipated. In energy and transportation, sales to users increased by 9%.

Power generation grew by 19%, primarily due to demand for reciprocating engines for data center applications. Turbines and turbine related services for power generation were down slightly due to timing. Oil and gas sales to users increased overall with the increase in turbines and turbine related services partially offset by a decrease in reciprocating engines due to the timing in gas compression. Industrial sales to users grew from relatively low level and were driven by sales into electric power applications. Transportation decreased due to lower marine sales to users and the timing of international locomotive deliveries.

Moving to dealer inventory and our backlog. In total, dealer inventory increased by approximately $100,000,000 versus the 2025. Machine dealer inventory was down approximately $400,000,000 in line with our expectations. As I mentioned, backlog increased sequentially by $2,500,000,000 driven by strong order rates in all three of our primary segments. Our backlog is at a record level of $37,500,000,000 Moving to Slide five.

I'll now discuss our outlook. Looking ahead to the 2025, I'm increasingly optimistic about the top line expectations. I'm pleased with another quarter of increased ordering activity and backlog growth, continued sales to users growth in Construction Industries and strong demand in Power Generation. However, as I mentioned, the incremental tariffs announced in 2025 and expected to be in place by August 7 will be a headwind to profitability during the remainder of the year. While we have taken initial mitigating actions to reduce the impact, tariff and trade negotiations continue to be fluid.

We will remain flexible, and we intend to implement longer term actions once there is sufficient certainty. We are considering all options to further reduce the impact of tariffs going forward. For the third quarter, we anticipate sales to grow moderately versus the prior year. Sales growth is expected to be driven by higher volumes in all three segments. Excluding the impact of incremental tariffs, third quarter adjusting operating profit margin is expected to be similar to the prior year.

Including the net impact from incremental tariffs, we expect third quarter Enterprise adjusted operating profit margin to be lower versus the prior year. Given the strength of our record backlog, we expect full year 2025 sales and revenues to increase slightly versus 2024. This represents an improvement since our outlook last quarter and our full year outlook from the beginning of the year. Full year services revenues are expected to be about flat versus 2024. This is slightly lower than our previous expectations due to lower than anticipated machine rebuild activity throughout the year.

Excluding the impact of incremental tariffs, full year adjusted operating profit margin is expected to be in the top half of our target margin range. Including the net impact from incremental tariffs, we expect full year adjusted operating profit margin to be in the bottom half of the target margin range. This estimate includes the initial mitigating actions already implemented and currently planned throughout the rest of the year. We also expect ME and T free cash flow to be around the middle of the $5,000,000,000 to $10,000,000,000 target range. Andrew will provide more details on key assumptions for the third quarter and full year in a moment.

To further support our sales outlook, I'll now share the latest view of our end markets. Starting with Construction Industries. As I mentioned earlier, we're encouraged by another quarter of sales users growth, strong order rates across many of our regions and backlog growth. Customers continue to be responsive to the attractive rates we're offering through Cat Financial. And as a result, we anticipate full year growth in construction industry sales to users despite softness in the global industry.

In North America, overall construction spending remains at healthy levels and infrastructure projects funded by the IIJA continue to be awarded. We now expect full year growth for sales to users, which is an improvement from the outlook we provided in January. Full year dealer rental revenues are also expected to grow as dealer rental fleet loading is expected to increase in the second half of the year. In Asia Pacific, we anticipate full year sales to users growth. China has shown positive momentum to start the year, and we expect full year growth in the above 10 ton excavator industry, but from a very low level of activity.

In Asia Pacific, outside of China, we expect economic conditions to be soft. In EAME, we expect moderate sales to users growth for the year, driven by healthy construction activity in Africa and The Middle East and improving economic conditions in Europe. Despite weaker construction activity in Latin America, we expect sales to users growth for the year. Moving to Resource Industries. We currently anticipate lower sales to users in 2025 compared to last year as customers continue to display capital discipline.

However, we see positive momentum with strong order rates and backlog growth, particularly for large mining and articulated trucks. Although most key commodities remain above investment thresholds, declining coal prices have caused an increase in the number of parked trucks. As a result, we expect slightly lower rebuild activity throughout the second half of the year. Overall, customer product utilization remains high and the age of the fleet remains elevated. We also continue to see growing demand and customer acceptance of our autonomous solution.

We believe the evolving energy landscape will support increased commodity demand over time, providing further opportunities for long term profitable growth. And finally, in Energy and Transportation. The backlog growth was driven by robust order activity in power generation, oil and gas and transportation. We expect full year growth for power generation as demand remains strong for both prime and backup power applications, driven by increasing energy demands to support data center growth related to cloud computing and generative AI. We continue to stay close to our largest data center customers and receive regular feedback on their long term demand.

In oil and gas, we expect moderate growth in 2025. For reciprocating engines and services, we continue to expect softness in well servicing due to ongoing capital discipline by our customers, industry consolidation and efficiency improvements in our customers' operations. We do see positive momentum in demand for reciprocating engines used in gas compression applications. Solar turbines, oil and gas backlog remains strong, and we see healthy order and inquiry activity. With our investment to increase large engine capacity and process, we're continuously improving manufacturing throughput to meet customer needs across a broad range of applications.

Demand for products and industrial applications is expected to improve from previous lows, and transportation is expected to remain stable. Before turning the call over to Andrew, I want to briefly reflect as I approach my first one hundred days as CEO. I'm optimistic and excited about the possibilities ahead. As I visit with customers, employees, dealers and investors around the world, I'm proud to see our global impact, the Caterpillar team's relentless commitment to customer success. I'm also pleased that Kristi Pamianchi joined the executive office on May 1 as Chief Human Resources Officer to focus on recruiting and developing the best talent to deliver our strategy for long term profitable growth.

I look forward to sharing more about our strategic priorities and the incredible growth opportunities that lie ahead during our upcoming Investor Day in November. Now I'll turn it over to Andrew for a detailed overview of results and key assumptions looking forward.

Thank you, Joe, and good morning, everyone. I'll begin with a summary of the second quarter and then provide more detailed comments, including some on the performance of the segments. Next, I'll discuss the balance sheet and free cash flow before concluding with comments on our current assumptions for the remainder of the year and in particular the third quarter. Beginning on Slide six, sales and revenues were $16,600,000,000 a 1% decrease versus the prior year. This was in line with our expectations.

Adjusted operating profit was $2,900,000,000 and our adjusted operating profit margin was 17.6%. Both were better than we expected. Profit per share was $4.62 in the second quarter compared to $5.48 in the second quarter of last year. Adjusted profit per share was $4.72 in the quarter compared to $5.99 last year. Adjusted profit per share excluded restructuring costs of $0.10 in the quarter.

Other income and expense was unfavorable by $71,000,000 versus the prior year, primarily driven by an unfavorable foreign currency impact of $122,000,000 from ME and T balance sheet translation in the quarter compared to a favorable impact of $20,000,000 last year. Excluding discrete items, the estimated annual effective global tax rate was 23%. The year over year impact from the reduction in the average number of shares outstanding, primarily due to share repurchases, resulted in a favorable impact on adjusted profit per share of approximately $0.17 Moving to Slide seven, I'll discuss our top line results for the second quarter. Sales and revenues decreased by 1% compared to the prior year, primarily due to unfavorable price realization, which was partially offset by higher sales volume and financial products revenue growth. As I mentioned, sales were in line with our expectations.

Moving to operating profit on Slide eight. Operating profit in the second quarter decreased by 18% to $2,900,000,000 Adjusted operating profit decreased by 22% versus the prior year to $2,900,000,000 mainly due to unfavorable manufacturing costs that largely reflected the impact of higher tariffs and the impact of unfavorable price. Deferred compensation expense also negatively impacted operating profit in the quarter due to strength in the equity markets. This is an item we do not forecast as it is offset by the total return swaps, which were reported as income in other income and expense. The adjusted operating profit margin was 17.6%, a decrease of four eighty basis points compared to the prior year.

Margins exceeded our expectations, primarily due to favorable manufacturing costs driven by cost absorption. As Joe mentioned, the net incremental impact from tariffs was around the top end of our estimated $250,000,000 to $350,000,000 range for the quarter. With the decrease in certain tariff rates during the quarter, we lifted some holds on inbound shipments such that the high inbound shipment volumes more than offset the lower tariff rates. Tariffs impacted all three primary segments and part of the charge was not allocated to the segments recorded in corporate items. Also, please keep in mind the impact is net of mitigating actions in the quarter, which were of the no regrets type, mainly short term actions around cost controls.

Moving to Slide nine. I'll review the performance of the segments, starting with Construction Industries. Sales decreased by 7% in the second quarter to $6,200,000,000 primarily due to unfavorable price realization. Sales were about in line with our expectations as favorable currency impacts roughly offset unfavorable price realization. Despite sales to users growth, volumes were slightly negative due to a dealer inventory headwind.

Price was more unfavorable than we had anticipated as our attractive merchandising programs stimulated higher than expected sales to users in North America. By region, construction industry sales in North America decreased by 15% versus the prior year. In Latin America, sales decreased by 20%. Sales in the EAME region increased by 13%. In Asia Pacific, sales increased by 6%.

Second quarter profit for Construction Industries was $1,200,000,000 a 29% decrease versus the prior year. The segment's margin of 20.1% was a decrease of 600 basis points versus the prior year. The decrease was mainly due to unfavorable price realization. In addition, the net impact of incremental tariffs in Construction Industries had a negative impact of around 170 basis points. Excluding this impact from tariffs, the margin was slightly lower than we had anticipated, primarily due to the headwind from price realization, which I mentioned a moment ago.

Turning to Slide 10. Resource Industries sales decreased by 4% in the second quarter to $3,100,000,000 Sales were about in line with our expectations. The 4% sales decrease was primarily due to unfavorable price realization. Second quarter profit for Resource Industries decreased by 25% versus the prior year to $537,000,000 The segment's margin of 17.4% was a decrease of 500 basis points versus the prior year. This was mainly due to unfavorable price realization, the net impact of incremental tariffs and the profit impact of lower sales volume, including unfavorable product mix.

The net impact of incremental tariffs in Resource Industries was approximately two thirty basis points. Excluding this impact from tariffs, the margin was slightly higher than we had anticipated due to favorable manufacturing costs, including freight and material. Now on Slide 11. Energy and transportation sales of $7,800,000,000 increased by 7% versus the prior year. Sales were in line with our expectations.

The sales increase versus the prior year was mainly due to higher sales volume By application, power generation sales increased by 28%, oil and gas sales increased by 2%, industrial sales increased by 1% and transportation sales were lower by 7%. Second quarter profit for Energy and Transportation increased by 4% versus the prior year to $1,600,000,000 The increase was primarily due to favorable price realization and the profit impact of higher sales volume, partially offset by unfavorable manufacturing costs, due to tariffs. The segment's margin of 20.2% was a decrease of 60 basis points versus the prior year. The net impact of incremental tariffs in Energy and Transportation was approximately 110 basis points. Excluding this impact from tariffs, the margin was slightly higher than we had anticipated due to favorable price realization and manufacturing costs.

Moving to Slide 12. Financial products revenues were approximately $1,000,000,000 in the quarter, a 4% increase versus the prior year, primarily due to a favorable impact from higher average earning assets in North America. These were partially offset by an unfavorable impact from lower average financing rates, mainly in North America. Segment profit increased by 9% to $248,000,000 The increase was mainly due to a favorable impact from equity securities and a favorable impact from higher average earning assets, partially offset by higher provisions for credit losses and an unfavorable impact from lower net yield on average earning assets. The increase in the provision primarily reflected the absence of a nonrecurring reserve release, which was a benefit in the prior year.

Our customers' financial health remains strong. Past dues were 1.62% in the quarter, down 12 basis points versus the prior year. This is the lowest second quarter in over twenty five years. The allowance rate was 0.94%, remaining near historic lows. Business activity at CAT Financial remains healthy.

Retail credit applications and retail new business volume both grew by 5% versus the prior year. Retail new business volume is at its highest levels for a second quarter in over ten years, reflecting the attractiveness of our sales merchandising programs. In addition, used equipment inventory levels remain low and conversion rates remain above historical averages as customers choose to buy equipment at the end of their lease term. Moving on to Slide 13. ME and T free cash flow was about $2,400,000,000 in the second quarter, approximately $100,000,000 lower than the prior year as stronger operating cash was more than offset by higher CapEx spend.

We continue to anticipate CapEx spend of around $2,500,000,000 for the year. Moving to capital deployment. We deployed about $1,500,000,000 to shareholders in the second quarter. Share repurchase spend accounted for about $800,000,000 with the remainder reflecting our quarterly dividend payment. In June, we announced a 7% dividend increase, our fifth consecutive year with a high single digit quarterly increase.

Our balance sheet and liquidity positions remain strong. During the quarter, we issued bonds totaling $2,000,000,000 at attractive financing rates and net debt in ME and T was 5,200,000,000 We ended the quarter with an enterprise cash balance of $5,400,000,000 In addition, we held $1,200,000,000 in slightly longer dated liquid marketable securities to improve yields on that cash. Now on Slide 14, let me start with a few comments on the full year. We are increasingly optimistic about our top line expectations based on what we see today. As Joe mentioned, demand signals have remained healthy, including backlog growth across our three primary segments.

Against this supportive backdrop, we now anticipate slightly higher sales this year with a stronger second half than is typical. This represents an improvement since our outlook last quarter. To explain, we anticipate higher machine volume, including sales to users growth in the second half versus the prior year. Also, we continue to expect machine dealer inventories will be about flat for the full year, which implies some net build in the second half versus a decrease in the corresponding time period in 2024. Energy and transportation sales should grow in the second half as well, driven by the strength of our backlog and robust order activity.

We expect some adverse price realization in the second half versus the prior year, although this will be at a lower level than in the first half. Now moving on to margins. Excluding the impact of incremental tariffs, the full year adjusted operating profit margin is expected to be in the top half of our margin target range. However, including the net impact from incremental tariffs, we now expect full year margins will be in the bottom half of the target range on slightly higher sales and revenues versus 2024. Excluding this tariff impact, our second half margins are expected to be stronger than the prior year.

However, we anticipate they will be lower when incorporating the net impact of incremental tariffs. Based on the incremental tariffs announced in 2025 and expected to be placed on August 7, we expect the net impact from incremental tariffs for 2025 will be around $1,300,000,000 to $1,500,000,000 net of some mitigating actions and cost controls. This assumes higher net incremental tariff impacts in both the third and fourth quarters compared to the second quarter level. Due to the timing of recent rate changes, the headwind is likely to be larger in the fourth quarter when compared to the third quarter. As Joe mentioned, we expect ME and T free cash flow will be around the middle of the 5,000,000,000 to $10,000,000,000 target range or around $7,500,000,000 We now expect restructuring costs of approximately $300,000,000 to $350,000,000 in 2025.

This is higher than we previously expected due to the timing of an anticipated loss on the divestiture of non U. S. Entities. On taxes, we are evaluating the impact of recently enacted U. S.

Legislation and do not currently expect this change to have a material impact on our 2025 effective global tax rate, which we have previously estimated to be 23% for 2025, excluding discrete items. Turning to Slide 15. To assist you with your modeling, I'll provide our third quarter assumptions. Based on what we see today, we anticipate third quarter sales will grow moderately versus the prior year with higher volumes across all three primary segments. By segment, in Construction Industries, we expect sales increase in third quarter versus the prior year on volume growth driven by strong sales to users.

The year over price comparison begins to ease this quarter. We expect our sales merchandising programs will continue yielding results, supporting strong sales to users, but a headwind to our price realization in the quarter with the unfavorable impact roughly half the size we saw in the 2025. This headwind should continue to diminish in the fourth quarter. In Resource Industries in the third quarter, we expect slightly higher sales versus the prior year, primarily due to higher volume, partially offset by unfavorable price realization. The impact of price is expected to be similar to what we saw in the second quarter versus the prior year.

In Energy and Transportation in the third quarter, we anticipate sales growth versus the prior year driven by continued strength in power generation. We also expect higher sales in oil and gas driven by solar turbines and related services. Price realization should remain favorable as well. Now I'll provide some color on our third quarter margin expectations. Excluding the net impact from incremental tariffs, we expect the third quarter enterprise adjusted operating profit margin will be similar to the prior year with higher sales volume about offset by unfavorable price realization and higher SG and A and R and D costs.

Including the net impact from incremental tariffs, we anticipate a lower enterprise adjusted operating profit margin in the third quarter versus the prior year. As I mentioned, the tariff headwind should be larger than the second quarter, which reflected just a partial quarter's impact. We anticipate a net cost headwind of about 400,000,000 to $500,000,000 in the third quarter. Now I'll make a few comments regarding our segment margin expectations for the third quarter. In Construction Industries, excluding the impact from the incremental tariffs, we expect a similar margin compared to the prior year with higher sales volume about offset by unfavorable price realization.

Including the net impact from incremental tariffs, we anticipate lower margins in Construction Industries versus the prior year. We expect about 55% of the third quarter tariff impact will be incurred in Construction Industries. In Resource Industries, excluding the impact from incremental tariffs, we anticipate a lower margin versus the prior year, mainly due to lower price realization and higher SG and A and R and D costs. The net impact from incremental tariffs will reduce it further. We expect about 20% of the third quarter tariff impact will be incurred in Resource Industries.

In Energy and Transportation, excluding the impact from incremental tariffs, we anticipate slightly higher margin versus the prior year, mainly due to higher volume and favorable price realization, partially offset by higher manufacturing costs. Including the net impact from incremental tariffs, we anticipate similar margins compared to the prior year. We expect about 25% of the third quarter tariff impact will be incurred in Energy and Transportation. So turning to Slide 16, let me summarize. We are increasingly optimistic about our underlying business and now anticipate slightly higher sales for the full year, including a stronger second half.

Business activity and customer financial health remained strong as do our balance sheet and liquidity positions. With the net impact from incremental tariffs, we expect to be within the bottom half of our target range for adjusted operating profit margins and around the middle of the target range for ME and T free cash flow. We continue to execute our strategy for long term profitable growth. And with that, we'll take your questions.

Thank you. We will now begin the question and answer session. Your first question comes from Tami Zakaria with JPMorgan.

Hey, good morning. Thank you so much. I appreciate the quantification of the tariff headwind. My question is not related to this year, more medium to longer term in nature. So without the tariff impact, your operating margin would have been in the top half of the target, which is absolutely impressive.

So I'm curious how you're thinking about mitigating some of these tariff headwinds as you look in the medium to long term? Do you plan to change sourcing or recoup some of the headwinds through pricing? Or should we expect part of this tariff headwind to be sort of structural and embedded in your long term operating margin target range that you provide? So any color on how to think about tariffs and margins in the medium to long term?

Yes. Thanks, Tammy. This is Joe. Before we sort of dive into that and unpack it, think one thing that's important to understand is maybe taking a step back and looking at the global nature and complexity of our business, the diversity of our business. We're a global business.

We're proud of our global footprint that enables us to take care of customers all around the world. But as part of that global business, The U. S. Represents our largest footprint. We have over 50,000 employees in The U.

S. We operate out of 65 key locations in 25 different states. We have been and continue to be a net exporter out of The U. S. Since 2016, our exports, in fact, have grown 75%.

And over that same time period, we've been able to increase our we have a lot of different products and segments. We've built a a global supply chain, that's unique to us. It works for us. You know, it's been developed over a significant amount of time and allows us the strategy behind that supply chain allows us to increase our footprint here in The U. S, like I just mentioned, but at the same time being globally competitive on our cost structure as we serve customers around the globe.

So I think you've seen that transpire in the way we've executed results over the last five years or so, and it's generated good results for us. So in the context of how we're thinking about tariffs, we just need a little bit more certainty. We've learned a little bit more obviously in the last week or so in some of the announcements that are out. We're still working to understand the implications of those in the details. We still believe there's a little bit of uncertainty out there.

And as we get further down the road and gain more clarity, we'll take the appropriate actions. Some of those actions and you kind of mentioned all of them, I think all of them are on the table. Obviously, some of the actions are quicker for us to implement and quicker for us to see results versus moving a footprint requires some investment and can take a significant amount of time. So I think it's a in the context of how we're looking at it over time, we're going to mitigate the impact of tariffs. Exactly which lever we're going to pull, we're looking for a little more clarity before we reach into those.

That doesn't mean we've been doing nothing. As Andrew mentioned, we're taking no regrets actions. We're trimming costs on discretionary spending, things that can be done quickly, easily reversed. Where we have limited dual sourcing and it's beneficial to us, we're making those moves. We're working on certification of USMCA compliant products.

We'll continue to do all those things in the short term and we continue to analyze and try to figure out which of the long term levers we want to pull and in what order. But we're going keep everything on the table and we're going to manage this over the medium term.

We'll move next to David Raso at Evercore ISI.

Hi. Thank you. The demand profile that you're building exiting '25 and '26, it's obviously encouraging, right? Dealer inventory is down, Nice book to bill. And the backlog looks like, you know, your next twelve months shipping and backlog is gonna be over, you know, 80% of the implied second half sales.

I mean, it's never been that high. I mean, it averages 55 ish percent. Even the last couple of years, you were never that high. So it does appear you have the demand profile, the low dealer inventory. But in a way, having the backlog covering that much already, I'm curious and even what you just said, completely prudent not to make any dramatic moves on supply chain moves.

Is there a way to reprice the backlog? I'm just curious because the idea of having the backlog coverage is very encouraging. I'm just curious to sort of maybe get a lift going as we start, say, '26 on the margins even with the tariff impact. Is there a way to reprice the backlog and maybe get the margin growth year over year, say, as early as the '26? Thank you.

Yes. I mean, I'll let Andrew chime in here, too. Thanks for the question, David. We generally speaking, we have flexibility on pricing in the backlog depending on which segment in the products that we have. As we look specifically, I think your questions around margins and pricing specifically, we want to take into context the entire business.

You pointed out rightfully, we have good momentum in the business operations. Our backlog continues to grow in all three segments. As you think about pricing towards the back half of this year, we'll lap those price merchandising programs. So the headwind will become a little bit less year over year as we move towards the end of the year. And I'm not saying we're definitely focused on margins, but our ultimate goal is dollar OPAC.

That's going to drive dollar profitability and cash flow and good returns for everyone. So we're going to get the balance right. I think also you keep in mind when it's merchandising programs with CAF Financial and rates over time, that's beneficial for us so we get some of that back. So we're going to look at it. We haven't made any decisions definitively at this point in time.

But as you stated, we're definitely happy with the momentum that we have. And as we move towards the back half of this year, we'll continue to look at all the levers that we have. I'd like to see how much we can mitigate on tariffs, specifically other ways before we use pricing as a lever. And then I think the other context to look at this is, as we lap and get back to the fourth quarter where it's less of a headwind year over year, Two years ago, particularly in the machine side of the business, we were in a constrained environment where we pulled back on discounting. So there's a level of this.

I'm not saying all of it, but there's a certain level of it that when you get to an unconstrained more normalized environment, we're returning to more normalized competitive merchandising programs. But we're happy with the programs that are in place. They're driving incremental volume. Net net NCI, the impact of the merchandising and volume in the second half, we anticipate to be a positive impact to our business. So that's a dial that we have to keep a close eye on and we'll manage it appropriately.

Yes. And obviously what it does mean David is we have good momentum going into 2026 which is the most important thing. And just to remind you obviously always at the end of the day operating leverage is always the most optimal way to manage margins for a company like Caterpillar. So that's one of the other areas we'll continue to keep an eye on and focus on.

We'll go next to Jamie Cook at Truist Securities.

Hi, good morning and congrats on a nice quarter. I mean, sounds like the underlying margin performance of the company is doing better ex tariffs, but specifically to ENT, Joe, it's now the biggest segment for Caterpillar in terms of sales and in terms of profit. I'm just wondering to what degree are some of the capacity additions weighing on your sales output and on your margins in 2025? And where we expect to be, I guess, we exit 2025 in terms of capacity, the level of capacity that we've added and what that could mean for incremental sales and margins as we look past 2025? Thank you.

Good morning, Jamie. Yes, we've we're definitely happy with E and T and where it sits right now, both from a performance standpoint and a backlog standpoint. And as you rightfully point out, each of our segments is in a different position. So when we talk about merchandising and pricing, E and T is in a little different situation. We're seeing positive pricing in E and T.

We continue to get more throughput through the factory. We were able to host many of you there a few weeks ago, so you got to see the size and scale of the capacity investment that we're making. And so we're happy that we're able to get more throughput and continue to increase our output from the factory. That's not capacity related. That's really more working with our supply chain and efficiencies in the factory and trying to get out more product.

I think you'll continue to see that as we move into 2026. But the biggest sort of capacity coming online, I would think of it in terms of end of next year heading into 'twenty seven, where we will hopefully see a little bit of a step change. But it's not linear. It's also not a cliff event, but we continue to improve and try to improve output every single month. So order rates continue to be strong.

We're really happy with what we're seeing there. And as far as the efficiency goes, would say inventory levels, and you guys were there, you saw a lot of it in efficiency when you're trying to get more product out. Same time, you're doing a big capacity investment at the factory. I would from my standpoint, clearly, we're not operating at the most efficient level that we could, but we're trying to make sure keep up with demand. So as the capacity comes online, I would like to see us become more efficient and get to more normal operations as well.

So I think there's a ton of upside here. We're extremely happy with the ENT business right now, and it's on a great trajectory.

We'll go to our next question from Robert Wertheimer with Melius Research.

Have two questions Basically the same question, that you just touched on. So could you talk about whether orders being placed now? Can are you taking orders to the expanded recip capacity you have coming online as you mentioned, like, '26 and '27 and and and onward at Lafayette. And then we haven't really touched on solar capacity very much. Your opportunities there have expanded visibly in data center.

I wonder if you might speak to capacity constraints there or whether you've increased capacity at solar as well. Thank you.

Yeah. We're taking orders pretty extended when it comes to data centers. It doesn't mean we can't take orders inside the time frame. But as I mentioned in my prepared remarks, we're planning with the largest data center customers years in advance. So we have line of sight to their schedules out into the time, I think, you're referring to as when the capacity comes online.

Are we full between now and then? No. I mean, we could still work product in sooner, but we're definitely taking orders out that far and have good line of sight to what we think demand is when that capacity comes online. And when it comes to solar, we continue to increase production there. We're pleased with the interest and uptake in the new Titan three fifty platform.

We're continuing to see, I would say, almost unprecedented interest in power generation when it comes to solar turbines. And so we're happy with where we're at. We're able to keep up at the moment. We continue to work with the supply base to increase our output. And we'll keep an eye on that and see how it transpires as we move forward.

We'll move next to Kristen Owen at Oppenheimer.

Hi, good morning. Thank you for the question.

I wanted to follow-up on the tariff good morning. Tariff piece of this, just helping us understand, while it is still a dynamic environment, what are the key tariff related uncertainties that we should be watching for? Just want to make sure that we have all of that captured in the current guide and trying to assess the risk that that number will change in the back half of the year as we learn more.

Yes. Kristin, as you know, obviously, there have been some and a fairly limited number actually of agreements actually made so far. So there are a number of countries reports today. Switzerland is not an impact on us, but for example, the Swiss are considering or trying to negotiate. So there may be more countries that come in.

So anything that is a country which is obviously still not subject to heads of terms or an agreement would be one area which could change. There are also some two thirty two and three zero two investigations which could have an impact on us as well. So it goes both ways and we'll have to keep an eye on that. That's why we say the situation still remains very fluid and is subject to change.

Next, we'll go to Chad Dillard at Bernstein.

Hey, good morning, guys. I just want to go back to your comment about, because building some inventory sequentially, through the balance of the year to get to flat year on year. Just wanted to get a sense for, I guess, your decision on that. And then just where are you seeing the visibility to get better to make that decision and what are customers saying?

Yes. So I mean, remind you that dealers are independent businesses and they make decisions about what inventory levels they hold. This is really just a planning assumption that we make based on what we're seeing from order rates that are coming in from dealers. We're assuming that based on what orders they've been placing, remind you now that we're getting close to actually a period of time where if a dealer order comes in, it will be filled by the end of the year. We base our expectations of what we're seeing on sales to users.

We would expect machines to be about flattish for the year. And that's really the driver of that assumption. Remind you again, this is complex, 150 dealers, 190 old countries around the world and a large product range. And we give you one number. So it's quite a complex activity, but that's generally what we're saying as a planning assumption.

And that's based on what we're seeing from an order rate perspective from dealers at the moment.

And I guess from my standpoint that the takeaway from that is, you know, if I'm seeing here the way I think you guys should think about it is we're in a different seasonal pattern than we normally are because we've had much stronger sales to users despite, maybe some softness in the global construction industry. So where normally we'd have a drawdown in inventory in the second half, we don't expect to see that same pattern this year, which should give us a boost to our sales, relatively speaking, to what you would normally see in seasonality, which is why we think we're going to have a nice second half of the year this year.

Good morning. Thank you. And sorry, have to go back to tariffs as well. I guess what wondering here is your thoughts in terms of longer term, how much of this tariff drag you think you will be able to mitigate? Is there a component that's just sort of structural and it implies maybe permanently lower margins for your business?

Caterpillar (CAT) Q2 2025 Earnings Call Transcript

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